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Sunday, March 25, 2012

HDBs more unaffordable than private homes

Earlier this week, property guru website posted an article claiming that HDB flats are more unaffordable than private properties. In the article, they used a "globally-recognised formula" where the Median Multiple (median house price divided by the annual median household income) is used to calculate housing affordability.

Housing affordability is evaluated based on the quotient deduced from the given formula, where a result of 3.0 and below would imply that houses are affordable, 3.1 to 4.0 (moderately unaffordable), 4.1 to 5.0 (seriously unaffordable), and 5.1 and over (severely unaffordable).

The median multiple for private properties is 6.03 which means they are ‘severely unaffordable’ but for HDB resale flats, the median multiple was found to be at a high of around 6.7, which lies within the ‘severely unaffordable’ bracket – and even more unaffordable than private properties.

HDB later published another article to rebut this claim, saying that the report is misleading. They said that property guru's article was based on resale flat prices, but most SIngaporeans purchased a new sale flat. Also, the calculation did not take into consideration of HDB grants.

HDB then took into consideration of grants and showed that there was minimal cash outlay required.

My thoughts about it:
1) minimal cash out lay is misleading
As I mentioned in an earlier article [http://madstranger.blogspot.com/2012/03/buying-hdb-with-only-pay-of-1000.html] , CPF contribution rates decreases with increase in age. Also, the CPF contribution towards OA will drop as age increases. Singaporeans buying new HDBs may not be aware of this and are likely to suffer in the cash flow later as more cash is required for installments.

2) CPF has lost its original purpose
Its original intention was for retirement planning. Many Singaporeans will end up with little or no balances in the CPF OA account. They are likely to end up having to pledge their properties to the CPF minimum sum when they retire. How can these people pass on their properties to their next generation. With the rising housing costs, are their children able to afford their own housing in the future?

3) What about resale properties?
With a even higher costs that comes with HDB resale properties, I still think that HDB housing have become very much unaffordable.